Tax deeds are a great investment medium, firstly due to the fact you can purchase property cheaply, creating a great return on your invested capital and additionally because you’re assisting your local governments in reclaiming bad debts, which overall, assist funding the services that we all take for granted such as libraries, buses, crossing guards, municipal buildings, etc.
Taxes are a necessary evil unfortunately and have been around since feudal times in China and Europe.
With this in mind, whilst tax deed invsting is great, there are some things about tax deeds and tax lien certificate sales that are rarely mentioned and tend to be glossed over.
Firstly, tax deed investing isn’t quite as easy as its made out to be on those informercials.
Sure, the prices they list on those informercials may be correct in most cases and there ARE many bargains to be had, but what they don’t say, while they’re trying to sell you their course or “get rich” package is the “element of risk” factor involved with investing in these properties.
If you were selling a lemon of a car, would you announce all the problems it has? The infomercial guys aren’t going to tell you about the pitfalls as all they want is to sell more of their training course.
Tax deeds and tax lien certificates are a great investment medium, but they’re not for the uneducated or uninformed.
I’m not talking about whether someone completed 10th grade or not here either.
Tax deed education can be earned through putting in the long hours to understand how the government and county process works, the process of auction in your choice of state is conducted, how and what redemption periods are involved and what associated laws govern the real estate and property industry.
Additionally, and probably the most important thing is what to avoid!
Now, aside from a lot of what is said in those informercials, a lot of research can be involved in “snapping up those properties at a bargain for pennies on the dollar”.
You MUST research the properties you’re interested in; not simply think you can buy any property on a tax sale list and walk away with a great buy.
You might come out with the added bonus of someone elses debts to repay as well, such as their mortgage, a debt attached to the property or you may have simply just lost your money by investing it in a worthless hole of a property.
Some properties on tax sales lists are great, while others are completely useless.
They can be landlocked (inaccessible by road), have existing federal, IRS or mortgage liens attached to them (meaning they are possibly worthless if the liens owing are worth more than the property value) and a host of other hidden reasons.
Firstly, when you read through a tax sale list, whether it be an auctions-coming-soon list or an over-the-counter list of properties that have been auctioned but never sold, what I want you to remember is that what you could be buying here is, or was in actual fact, someone elses problem.
We’re not usually buying the shiny new house that is at the real estate agent in a lot of cases. Sure, sometimes those make it to tax sale as well, as even rich people don’t pay their taxes sometimes, but most of the time, it tends to be the squeaky wheel type house that there has been problems with or it could be in the middle of nowhere.
“Hey check it out, I just bought 100 acres!” (in the middle of the desert)
Unless you are very creative or lucky, I would suggest you research the properties.
The tax delinqent property was or is usually being auctioned off for a particular reason and if possible, before purchasing, what you should try and establish as closely as possible is why it’s being auctioned in the first place.
Is there a toxic waste dump under the property since it was used as an industrial site fifty years previously, is the house falling down, is the land unbuildable or maybe what you’re looking to purchase at a bargain price is a road, some parkland, a nature strip, a swamp or retention area?
These are just some of the possibilities and things to avoid in a property and also some of the reasons as to why the the property might be on the list for sale in the first place.
This is just to show you worst-case scenario here and you’ll find that often there is not much wrong with a property at all.
You may find the property is completely sound, in a nice area and ripe for the picking to go into your bag of property, but what I am trying to stress to you is that due diligence is required as is researching the history of the property itself.
This is probably THE MOST IMPORTANT ASPECT OF THE TAX DEED INVESTING BUSINESS!
I would suggest searching these details either yourself or to hire professionals to do the dirty work for you.
Hire a title search company such as Old Republic, ADI Reporting or National Abstract to name a few. They can help you find out the history of the property in question for a small fee.
Here are some additional thoughts and tips on tax deed investing.
Tax deed and tax lien certificate investing require forethought and planning before simply jumping in and purchasing without research. It’s not quite as easy as it’s made to sound on those informercials.
Conduct a title search on the parcel of land using either plat maps, online parcel search tools or a title search company and ensure you check previous deeds, aerial photos and grounds photos of the property as well (if possible). These are available on many county websites.
Search for information on the property using county tax assessment roles and deed searches, seeking out whether there are any liens, caveats, mortgages or other debts attached to the title of the property.
Additionally, at the end of the process, once you’ve received your tax deed is file what’s known as a “quiet title suit” through your lawyer.
This will ensure the property is yours, has no defects to the title and is then marketable as you see properties at the real estate agents in the window.
Thanks for taking the time to read this article and don’t become dishearteneded. There are plenty of great tax deed properties out there. You just have to be careful and my intention here was to open your eyes to the possible pitfalls of tax deed investing, not discourage you from your dreams.
I hope you find your dream properties and good luck!